I am a senior editor at Forbes, covering legal affairs, corporate finance, macroeconomics and the occasional sailing story. I was the Southwest Bureau manager for Forbes in Houston from 1999 to 2003, when I returned home to Connecticut for a Knight fellowship at Yale Law School. Before that I worked for Bloomberg Business News in Houston and the late, great Dallas Times Herald and Houston Post. While I am a Chartered Financial Analyst and have a year of law school under my belt, most of what I know about financial journalism, I learned in Texas.

The Tiny TV Broadcaster That Cable And Internet Giants Are Trying To Kill

Sky Angel’s satellite farm outside Chattanooga, Tenn. looks like any cable-television headend–down to the gray-haired engineer who strides out of the electronics shed sporting a short-sleeved dress shirt, narrow tie and pocket protector. With 19 state-of-the-art satellite dishes, the faith-based and family-themed broadcaster can download more than 50 cable-television channels and deliver them potentially to hundreds of thousands of customers nationwide.

One big problem: Sky Angel distributes its signals over the Internet instead of a conventional cable-TV system. That’s got the cable-TV industry in a big-screen snit. If enough companies do what the Naples, Fla. firm is doing, a new wave of competition could demolish the cozy duopoly between land-based cable TV and satellite competitors like DirecTV. Rates could drop, and cable operators might lose their most cherished power: compelling consumers to buy bundles of programming instead of ordering channels à la carte.

Sky Angel’s chief executive, Robert Johnson, doesn’t look like a troublemaker. A devout Christian with a degree in accounting from Oral Roberts University, Johnson, 49, runs an utterly conventional cable-TV broadcaster with offerings like the NFL Network, the Hallmark Channel and the Weather Channel. He switched to the Web only after the costs of distributing his signal over direct-broadcast satellite got too high. “We never tried to be the big bad wolf,” Johnson says. “Just let me run the business the way I want to run it–sell me what I need.”

Not so simple. Sky Angel’s president, veteran corporate lawyer Thomas Scott, says he had little difficulty at first negotiating contracts with programming companies. Most were excited about the new technology. But in 2010 Discovery cut off access to some of the most popular channels, including Animal Planet and the Military Channel, saying Sky Angel violated its contract by distributing them over the Internet.

Scott says the seven-year contract explains how Sky Angel’s system operates. But since then it’s been tough getting programming. Discussions with one prominent company recently stalled out, Scott says, after an executive told him “it would be bad for them” to sell to Sky Angel.

“This technology scares them,” says Charles Naftalin, Sky Angel’s lawyer in Washington. “For a relatively small amount of money, anybody can have the equivalent of a cable-TV system.”

Scott and Johnson have met with Justice Department lawyers who are investigating possible antitrust violations in the programming industry. And Sky Angel has petitioned the Federal Communications Commission to force Discovery to honor its contract under rules designed to prevent companies affiliated with cable-TV networks from discriminating against competitors. This last move has drawn opposition from unlikely sources, including Google, which may not want its own online-video business to fall under FCC regulation.

Johnson inherited Sky Angel from his late father, Robert Johnson Sr., a Detroit marketing executive with a dream of building a religious, and family-themed, television network free of the sex and violence on popular TV. After working with religious broadcaster Pat Robertson, Johnson Sr. realized his biggest barrier was distribution, so he applied for the first allocation of direct broadcast satellite frequencies in 1980 and won eight. He then struck a joint venture with Dish Network, under which Dish paid for the use of some of his frequencies and carried Sky Angel over its EchoStar III satellite. Sky Angel grew to 115,000 customers paying $14.99 a month, most of them in the center of the country.

EchoStar III was close to failing in the early 2000s, and the Johnsons balked at investing $300 million to $400 million in a replacement. Meanwhile, the Internet had come along, and Johnson got an idea: Why not distribute programming over the Web instead of expensive, failure-prone satellites?

Sky Angel hired outside vendors to develop small boxes that could receive encrypted signals over the Internet and deliver them to television sets. Its receivers look and function like an Apple TV device, except they can handle streaming video as well as stored entertainment on demand. Johnson’s strategy may have gotten some backhanded validation in recent reports detailing how Apple is reportedly in talks with cable-TV operators about upgrading its technology to distribute streaming video. Sky Angel, of course, commissioned boxes with that capability years ago.

By 2007 Johnson was ready to pull the plug on satellite, selling residual frequencies for a good price (how much he is contractually barred from saying). “We could have decided to shut the company down, take the money and run,” Johnson says now. But he didn’t want to lay off Sky Angel’s 160 employees–now down to 76–and he felt he “had the opportunity to do something innovative.”

Johnson poured $15 million into the satellite farm and an office building in Chattanooga that houses video-mixing equipment, engineers and customer-service employees. He uses 200 megabit-per-second Internet backbone lines to carry his signals to hubs in Long Island, N.Y. and Palo Alto and then pays to have its content delivered to individual subscribers by companies like Level 3 and Akamai.

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As someone who spends the 30 minutes of the football game trying to get the DTV antenna in the right place, I am confused as to why they just don’t stream all the local channels at least. Then make the subscription content like NFL, NBA much more competitively priced. In fact, I’d like to see them bundle content with the ISP, in my case Clear Wimax. This would let me have a single monthly price, and get streaming content over my wireless broadband which delivers a more reasonable “signal” than DTV.

Avoiding danger is no safer in the long run than outright exposure. The fearful are caught as often as the bold. -Helen Keller Even though she was blind she would have chuckled at this new revelation. Congrats to the new cable giant.

Pleased to see the enterprising thinking and continuing expansion to internet distribution.

Sad to see the both heavy-handed and then near-comical interference by the other “players” you mention.

It is always possible that Google have good reasons quite unrelated to YouTube concerns and it is always possible that the FCC has some good reasons…but without knowing all the details it’s hard to know and easy to jump to conclusions which seem “likely”.

In the end it’s a pleasure to see a brave company trying new methods of distribution to their market.

This story does also show, the frail state of “free enterprise” and open competition at the moment, does it not?

Gentlemen, If I were you I would pursue small independant specialty programs in addition to the main channels you now carry. Programs like: Living off the land, rebuilding motors and general car maintenance, golf instruction, a Crafts channel, a designer channel, a channel for different levels of education(coles notes style), How to market, a channel featuring where to get the best bargins(groceries), And the list goes on. These programs would be cheap to produce and bring in larger select groups of veiwers. More importantly they would cover uncharted territory that has pent up demand. Just a thought that would clearly separate you from the cable dinosaurs.

It takes men with heart & vision to dream a dream and follow it no matter the obstacles or who tells them they can not accomplish the goal. Mr Johnson & Mr Scott are just that kind of leaders. Sales & Service Center staff stands steadfastly behind you both. God Bless you & God bless Fave/Sky Angel television.

It is astounding, the power of the entities arrayed to fight them. If they succeed in their battle with the forces of the status quo; the FCC and the cable companies, Pay TV as we know it will cease to exist. The future of streaming, linear, premium TV , is upon us.

Definitely restraint of trade and an impediment to the free flow of information and ideas: almost a corollary to David Sarnoff’s willful effort to bankrupt Howard Armstrong after he and RCA stole his FM patents.